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How Coca-Cola Saved Monster From Its Earnings

Monster Beverage Corp. (NASDAQ: MNST) reported its second-quarter financial results after the markets closed on Thursday. The company had $0.79 in earnings per share (EPS) on $694 million in revenue, versus consensus estimates that call for $0.91 in EPS on $756 million in revenue. The same period from the previous year had $0.82 in EPS on $687 million in revenue.

In the second quarter, gross sales to customers outside the United States were $187.2 million, compared with $180.2 million last year. At the same time, net sales to customers outside the United States were $151.3 million, compared with $148.4 million.

It is worth noting that Coca-Cola Co. (NYSE: KO) now owns an approximate 16.7% stake in Monster. This was the result of a long-term mutual partnership agreement enacted in mid-June. As part of this partnership, Monster transitioned the vast majority of its U.S. distribution of Monster Energy products to Coca-Cola’s distribution network and agreed on a framework for transferring additional Monster Energy distribution to Coca-Cola’s system internationally.

As a result of the transaction, Monster incurred obligations related to distributor terminations totaling $12.2 million and $218.2 million during the three and six months ended June 30, 2015, respectively. However, as part of the transaction with Coca-Cola, Monster received a payment of $2.15 billion, which more than balances out these obligations. This is resounding clear on the balance sheet.

At the end of the second quarter, Monster had $2.93 billion in cash, cash equivalents and short-term investments compared to $1.15 billion at the end of December 2014.

Rodney C. Sacks, chairman and CEO of Monster, commented on earnings:

We are pleased to report that the transaction with The Coca-Cola Company closed mid-June and we are making good progress working through the transition. Although we are reporting another quarter of sales growth, distributor transitions and uncertainties in portions of our international non-Coca-Cola distribution network impeded further revenue growth during the second quarter.

He continued:

As previously mentioned, The Coca-Cola Company transaction presents a unique opportunity for us. To date we have transitioned approximately 89% of our targeted distribution rights in the United States to The Coca-Cola Company and its distribution network and we have recently transitioned our distribution in Germany to this network. We are actively engaged in implementing our strategic alignment with The Coca-Cola Company and have commenced discussions with Coca-Cola bottlers in many countries around the world.

Shares of Monster closed Thursday down nearly 6%, at $144.87 in its 52-week trading range of $68.49 to $155.83. After the earnings report was released, shares were up 3.2% at $149.49 in early trading indications Friday. The stock has a consensus analyst price target of $151.73.

By Chris Lange